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October 24, 2016

Last month I talked about ten types of trades you should avoid at all costs. I received lots of feedback, including several more that should be added to the list. But the one I liked the best was a one sentence response sent from a close friend:

“So then Mr. Negative, what stocks should I buy?”

That is the $64,000 question for all of us now isn’t it? Or for many of you, the million dollar, or multi-million dollar question. It’s easier to talk about what you shouldn’t do, but what you should do is really where the rubber meets the road.

So as Mr. Positive, here is one simple, positive trade idea that may help you grow your money in the stock market over the long haul.

Purchase stocks that pay you to own them.

You see gang, in the real world most of you don’t have the time or energy to watch your stocks every day, or every week for that matter. Somewhere in between your endless list of to-dos and honey-dos it’s hard to properly keep up with your finances and investments. With eveything on your plate you barely have time to take a quick glance once a month, and it’s typically over a weekend when the markets are closed and you can’t do anything about it anyway. Then Monday comes and your tour of duty starts all over again, and by the time you get around to doing something about that stock you looked at a few weekends back, you can’t remember what you intended to do or why, and so you make a mental note to circle back around again later. Sound familiar?

The fact is that non-professional investors, like most of you, who like to dabble in the stock market but don’t make a living at it, tend to hold onto a stock for at least three years. In every portfolio I’ve personally reviewed, that number is actually larger, more along the lines of five to ten years. But your longer term holding period is not because you necessarily want to be a long term investor and are a big believer in the buy and hold investment strategy. It’s because life keeps you too busy to be anything else. You simply can’t muster the time and energy to sit down and analyze what you own and why, and what you should do about it, if anything.

So rather than beat yourself up about not having your brokerage account on your I-Phone and reviewing your investments every hour on the hour, why not concede that you are probably going to maintain your same busy life style, and adjust your trading strategies to fit your life? And if that means you are probably going to hold stocks for a long time, then own ones that will pay you handsomely for the right to use your money. In other words, own stocks that pay dividends. Let me take it a couple of steps further. Own stocks that pay consistently strong and consistently increasing dividends and whose prospects for continued payout are good.

Strong Dividend. I’m talking about a dividend that at least beats inflation. So right now a strong dividend should be north of around 2.5% per year.

Consistent Dividend. The security has had a track history of paying the dividend on a consistent basis year after year, during both good times and bad.

Increasing Dividend. The dividend has been increasing at least every few years.

Continuing Dividend. There appears to be nothing on the horizon that could stop the dividend from being given.

Where can one find out whether a company or a security pays a dividend, or a distribution? Easy. Investment research firms, like Morningstar, can provide you all the information you need at the click of a mouse, and usually for free if you know where to look. You can find all kinds of information on the company, including the price and dividend history, along with the current yield.

So if you want to invest in the stock market, I would implore you to first and foremost invest the time and energy to do it right. But if you find that you just don’t have as much time to devote to it as you would like but still want to participate, then for Pete’s sake at least possess securities that pay you for owning them.